Cost Analysis And Risk Control Of Listed Companies' Refinancing

In recent years, refinancing is heating as compared with IPO in domestic capital market. After a period of IPO, the listed company may face with the capital bottleneck again. In order to keep a high speed and sustained development, the listed companies have to solve the capital shortage through refinancing. However, the cost and risks in refinancing are the concerned in this business all the time and also the key factors in connection with the execution of the refinancing.The article selected seasoned equity offering, rights offering and convertible bonds as objects of study; elaborated the three ways of refinancing from the aspects of classifications of refinancing, conditions of characteristics of issuing and then analyzed the cost of refinancing, including direct cost, indirect cost and other cost, which is an innovative idea in this article; classified and discussed the refinancing cost based on its occurrence sequences and character istics in the process of refinancing. On the direct cost, the article made the analysis from the view of the intermediary agencies and listed companies who produced cost, including accounting firm, law firm, sponsor, underwriter, property assessment institutions, publicity agency, guarantor, listed companies and related departments; on the indirect cost, detailed analysis has been conducted around the dividend cost, interest cost of corporate bonds and redemption cost of convertible bonds; the other cost mainly refers to the expense incurred after the refinance except the direct cost and indirect cost, containing failure cost, regular information disclosure express and rent seeking cost as well as the opportunity cost. Third part is talking about the risks of refinancing. When the refinancing completed, the equity of the listed companies increases dramatically, on the other hand, the return of the invested projects can not match accordingly. Therefore, the operating indicators get diluted and fall down, which give impacts to the share price of the listed companies. Neglecting the feasibility study of refinancing, many listed companies made investment blindly, changed the use of the capital optionally and made diversified investment without pre planning, which brought major risks of the refinancing and resulted in low efficiency of the investment and also damaged performance. Apart from the above issues, the management of the refinanced capital may also bring risks to the listed companies. The major shareholder occupied the capital uses the money to make trust financing. Meanwhile, the purpose of the capital refinanced is bad planned because of the poor management, which leads to low efficiency of capital use, low liquidity, delayed project schedule and failure of realizing expected profit. Finally, according to the studied results of cost and risks, a conclusion that the refinancing risks regulation and control system should be set up and improved in order to ensure a better result of refinancing can be reached. Starting from the design of the evaluation parameters of refinancing, through financial ratio analysis, summarize discussion has been conducted in the aspects of financial status an operating results after refinancing. At the same time, the risk management in the process of refinancing of the listed companies should be strengthened. Before initiate the refinancing, detailed and complete feas i b i I i ty study has to be made, leverage ratio should be controlled, reasonable refinancing structure should be established and management and supervision in the course of the refinancing as well as the project execution should also be intensified, especially referring to the cash flow management, reasonable capital use plan, project schedule and profit finish plan all have to be designed. Maintain the liquidity of the asset and increase the capital use efficiency. Improve the refinancing process from a system prospective by setting up management system and responsibility system and ensure each section of work responsibility to each person. Accountabilities of Shareholders'Meeting, Board of Directors and financial department as well as related departments should be defined clearly in order to ensure every people do the things they ought to do and take the responsibilities they should undertake. Furthermore, reasonable dividends distribution policy and management system of refinancing special account should be established.Refinancing is a systematical and comprehensive work. How to make a reasonable financing decision according to the industrial characteristics, development stage and capital market conditions is becoming a more and more important task that every listed company domestically has to face and is also a critical part for the listed companies to achieve sustainable growth and shareholders value maximization. The listed companies are suggested to take cautions decision before refinancing.